Airlines are never going to make a return like other service industries. It’s an inherently low-margin business subject to ridiculous government policies.

I mean think about it, we don’t have even have unrestricted international transfers in this country! (i.e. LHR-EZE via MIA for two hours). Why do people making international connections have to go through US immigration? When I go to India via Heathrow, I don’t have to go through UK immigration in either direction.

Government stupidness is why we have the stupid fees in this country. Even ailing airlines in Europe still offer first bag free, and Lufthansa Group airlines now even serve food! And we haven’t even mentioned the TSA.

It’s the most dangerous phrase in investing, but I do think it’s different this time for the airlines. They will be more profitable in the next decade than they have been in the last.

The primary reason is that the industry has become more like an oligopoly. Stiff competition isn’t good for profitability. Think of UAL, for example. I would submit that, as the largest airline in the world, they don’t really have a major PRICE competitor these days. Sure, they have competitors, but not those who are likely to compete on price with them. Like is anybody really likely to be deeply discount transatlantic or transpacific biz class fares? This means that margins will remain high. And UAL will remain significantly profitable.

I also think that crazy oil prices are also helping airline profitability. The fact that NOBODY can predict future oil prices (since they’re not based on traditional fundamentals) means that everyone is reluctant to add capacity, and nobody wants to fund new entrants. Falling oil prices might lead to more capacity, and more discounting. Indeed, it will be interesting to see what happens to airline profitability when oil prices stop going up (as will inevitably happen, since trees don’t grow to the sky).

Amazing that AA continues to lose money…their fleet of MD80 is a study in antiquity, and their new policy on standby is insane: I was recently booked on the last flight out of a city, but was sitting around when the next-to-last flight was boarding. I offered to go early, since I was there, and they had empty seets, but insisted on $50. I declined. The last flight out was filled, and there were people who could not get on.

So, rather than fill an empty seat, they held out for $50 they never got, the plane left with the empty seat, yet they had to compensate people two hours later because they could not accommodate them. Bet that cost them more than $50.

They have gotten so locked into the fees mentality, that they have forgotten that sometimes it is in the best interest of the airline to put someone on an earlier flight without charging a fee.

Insanity.

What are they going to do when they finally have to retire all the Mad-Dog 80s and have to start paying for airplanes again.

Frank, the thinking behind the $50 policy, is that in the past passengers have booked the later(cheaper) flight and shown up for the earlier flight to see if there’s open seats. I agree that your situation could’ve helped them out, but these policies are result of passengers abusing pricing models. AA definitely isn’t the only airline that does this.

Buying “back-to-backs” and other tricks might be “abusing pricing models” but trolling for lowest published fares and then buying them isn’t, nor is booking the last flight out but hoping to stand by for an earlier one. In the crazy, algorithm-fueled universe of airline tx pricing, it’s considered strategy. Stand-by is inherently a crap-shoot but I’d rather have that remain a no-cost option and do the homework on loads (FT, EF, etc.). Actually, American’s $50 confirmed standby fee is one of the few that I don’t mind since it’s an opportunity to opt out of the game at a lower cost than it might have been to buy the ticket on the earlier flight would have been.

This really could’ve been one of a few things:
1. The airline doesn’t empower front line personnel to make smart proactive decisions. (e.g. If the gate agent would’ve checked the last flight, and noted the likelyhood of having to bump people, they could’ve made this switch.)
2. The gate agent didn’t care enough to check.
3. The gate agent did check, and in her reasonable estimation the flight was not going to have to bump people. (Remember, airlines often and regularly overbook, and even if a flight is overbooked it doesn’t mean everyone will show up.)

Unless it was number three the airline screwed up. (Well in all cases they screwed up, but at least they made a good effort to make an estimation.)

Sounds nice, but if WN’s operating margin is around 8%, and their average fare is $131, that means that passenger will give you about $10, far below any bag fee ($15-25) which is almost pure profit. Now would anyone prefer $10, or $20?

I agree with FrankV. I am an EXECPLAT and I booked a flight at the last minute so I rode in coach. I reserved 9D (on a Mad Dog) and I tried to move to 7D (bulkhead). The entire row was not reserved. Asked the TA and she said it would cost $$$. Asked an AAngel in the club and was told the same thing. I boarded and asked the FA and she said sure sit there. So AA pisses off a top tier and loyal flier hoping someone will buy the seat upgrade. Their policies have pissed me off so that I have started to take about half of my business to Frontier and JetBlue. What a difference.

How did Alaska manage to be so profitable, especially since they didn’t really cut back on growth like other airlines? True, they have very few flights in the northeast with winter storms and such, but there has to be more than that…

Hawaii, fuller planes than last year, cutting unprofitable routes, better revenue management strategy, and #1 on time percentage combined with all the things that make AS better than others like industry leading customer service, award winning mileage plan program, ability to compete with WN head to head, and a relatively young single type fleet. Addition of first bag fee didn’t hurt.

Sounds like you’ve partaken of a few glasses of the kool-aid recently. While I agree with pretty much everything you say, it does sounds like your a corporate drone at Sea-Tac.

I’m a bit surprised that no one has mentioned the QX re-branding, and potential entry into the State of Alaska. These two seem really big to me, above and beyond any other announcement that came out of any of the earnings calls.

I heard of the QX rebranding from a former QX (and current AS) employee. I see it as just more smart management from AS. Its driven around marketing costs and the simple fact that marketing two airline brands just doesn’t work. (Examples include Frontier/Midwest, United/Ted/Shuttle by United, Delta/Song/Delta Express, US Airways/Metrojet, Continental/Continental Lite, did I miss any?)

Unlike Proctor & Gamble who manage multiple brands within the same product category the tight costs and reduced ability to shift the production equipment between brands really dooms this as a viable strategy. These are $30 million pieces of equipment, not diapers folks..

@Steve Ly Well thats in Australia where the market conditions are different.

Is there as much competition there as there is in the US? I took a peek at a random sample of airlines in Australia, and most of them operate planes that would be considered regional airliners, or even smaller than that. It doesn’t seem that there is the same level of competition…

An aside, I think the airport of the future thing is something other airlines can and should get behind, even in smaller airports where they’d have to share the center belt. It’d be easy enough to put signs behind them of the airline to give them a more “individualized” look.

Oh, and I wonder if they’ve had a reduction in medical/workers comp claims from not having agents lift the bags.

Years ago Michael O’Leary President of Ryanair said in a magazine interview, that one day they and other airlines would not make money on ticket sales but rather on fees and sales of products. It seemed like a strange idea at the time, but now we are there. Most airlines now make the profit on fees, pretty much all their profit. The low ticket prices just do not pay the bills. So like it or not. This is the model in place and will most likely remain so.

Some good comments, particularily from Nicholas. It is quite sad the situation pointed out by Brad though and I do agree he is right, but when all profit is made on services and not on the ticket price, you do start to wonder how far companies are off charging for every little service as an addition. Look at the pardody show “come fly with me” on in the Uk currently where the spoof ryan air / easy jet passengers have to pay to activate their life jackets when they crash using a chip and pin terminal, im starting to wonder if this could happen!